Response April 8, 1994
Request
December 17, 1993
Legal Division
Utah State Tax
Commission/Heber M. Wells Office Bldg.
160 East 300 South
Salt Lake City, UT
84134
Attention: Tax
Department
We would like you to render an opinion as
to the taxability of the following services under the Utah State Tax Law.
1. Price File Update Services
Electronic transfer of pricing information
transmitted via telephone from computers in Michigan to customer computers in
your state. None of the material is printed or written. XXXXX obtains the data
from an outside party via electromagnetic tape and resells to our customers.
This information is used by our customers in the pricing of pharmaceutical
items sold at the retail level.
2. 3Rd Party Claim Processing
A service where by XXXXX acts as a third
party, submitting prescription insurance claims to insurance carriers on behalf
of retail pharmacy owners. Data is transferred electronically via telephone
from the customer computer in your state to remote computers outside of your
state for review, edit and submission to insurance carriers via electronic
transmission or electromagnetic tape. Reports pertaining only to information
extracted from the customers files are sent to the customer periodically. These
reports document claims transaction activity.
3. Aging Reports
A monthly accounts receivable report is
sent to the pharmacy detailing all claims XXXXX has sent to the carriers for
payment on behalf of the Pharmacy.
4. 3Rd Party Maintenance
Creation, maintenance, and updating of
computer programs specific to the function of third party prescription claim
submission. Programs being updated are unique to different states and over 100
regional insurance carriers. New programs are generally transmitted from
Michigan to customers in your state via telephone.
5. Training
We
provide a 2 day training on the sale of new computer equipment. This training
service is provided as a part of the sale of tangible personal property and is
included in the price of the equipment.
6. Installation
A flat fee for a 3rd party to install
computer equipment at store location. Installation includes travel to store site,
un-boxing, connecting cables and running a diagnostics test. This charge is
separately stated on the invoice. Installations can also be done by customer
with phone assistance from Michigan Office. Customer unpacks, connects all
cables and initiates activation of the software.
7. Freight
Shipping charges are separately stated on
the invoice. All shipping is done by common carrier. Transportation occurs
after the sale.
8. In-Transit
Insurance
Separately stated charge on invoice to cover
the cost of insurance against any damage that may occur during shipment from
Michigan warehouse to store location.
9. Labels
A 3 part pharmacy label for pharmacists.
One part is affixed to the prescription bottle when filled. Second part is
given to customer as a receipt. Third part is kept by pharmacist for his
accounting records. These labels are a continuous form that is fed through
pharmacy printer for prescription information.
10. Software
Maintenance
Optional maintenance contract. The maintenance
contract provides that the purchaser will be entitled to receive, during the
contract period, telephone or on-site consultation services and storage media
on which prewritten improvements or error corrections have been recorded. Costs
to provide consultation services are 60% and storage media updates to software
is 40%.
a.) Purchaser has the option to purchase
only the consultation service independent of storage media improvements.
Indicate if these services should be billed separately or are not billed
separately.
b.) Purchaser does not have the option to
purchase the consultation service independent of storage media improvements.
Indicate if these services should be billed separately or are not billed
separately.
11. Hardware
Maintenance
Optional maintenance contract for the
following services:
a.) Depot Exchange - Replacement parts are shipped to the customer
from Michigan. The customer only pays for the replacement part. The customer is
instructed via telephone the proper procedure for replacing the part.
b.) Depot Contracted - Replacement parts
are shipped to the customer from Michigan. The customer is charged a monthly
fee. The customer is instructed via telephone the proper procedure for
replacing the part.
c.) Contracted Maintenance - The customer
is charged a monthly fee. Two options:
1.) A third party goes on-site and
replaces the part.
2.) A third party goes on-site. The part
is shipped from Michigan to the store location.
12. Canned
Software
Pre-written programs used by customer
without modification.
13. Equipment
Rental
XXXXX agrees to provide renter equipment
and a non-transferable license to use the computer software for a monthly fee.
XXXXX shall hold title to the equipment and software at all times. The rental
period shall be 48 months with a 1 year automatic renewal. Price File, Software
Maintenance, Hardware Maintenance and 3rd Party Maintenance as discussed above
are included in the rental fee.
14. Initial
Start-up Fee (Rental's Only)
Includes administrative fees,
documentation, installation and in-transit insurance.
15. Facilities
Management
Provide management services to chain
stores that include the following: Daily, weekly and monthly system reporting
and mailing. File maintenance source documents will be prepared and provided to
the Chain. As changes are required, the file maintenance source doc. will be
completed, signed and faxed or mailed. Communication control verify all remote
pharmacies are transmitting data to the host location on a daily frequency.
Services performed in Michigan home office.
In order to substantiate the taxability of
each item, feel free to return this letter with "yes" or
"no" taxing. Also, please mark with state stamp.
Sincerely,
XXXXX
Tax Manager
April 8, 1994
Re: Advisory Opinion -
Sales or Use Tax Application to Various Sales and Services
Dear XXXXX:
Your request (copy attached) for an
advisory opinion as to whether certain sales and services are subject to the
Utah Sales and Use Tax Act was referred to the Auditing Division for their
analysis.
The division's staff recommendations are
as follows:
1.
XXXXX as described are not currently treated as taxable under the Utah
statute.
2.
Third Party Claim Processing as described and the associated reports
documenting claims transactions are not considered as constituting the sales of
tangible personal property, and are, therefore, exempt from the tax.
3.
$$$$$ Charges for Ageing Reports sent to the pharmacy are similarly not
considered as taxable sales of tangible personal property.
4.
Third Party Maintenance charges as described are not considered taxable
unless program updates, etc., are provided to customers by way of tangible personal
property (diskettes, magnetic tape, etc.), See Rule R865-19-92S attached.
5.
Training charges, whether included in the price of equipment or
separately stated, are taxable if the sales of the equipment are taxable.
Generally, charges for services in connection with the sale of tangible
personal property are included in the tax base for sales tax computation.
6.
Charges for installation as described in your request are subject to the
tax as part of the sales price of the tangible personal property or as
installations of tangible personal property in connection with other tangible
personal property. See Rules R865-19-78S and R865-19-51S.
7.
Freight charges which are separately stated and for shipment subsequent
to title passage are exempt from the tax. See Rule R865-19-71S and Tax Bulletin
5-91 attached.
8.
Charges for In-Transit Insurance are exempt if such insurance covers
damage occurring after title passage to the customer, and if it is billed to
the customer in the same amount paid by the seller to the insurance company.
9.
Labels which remain on the article sold and are primarily for the
benefit of the customer are exempt from tax as packaging. Labels which act as
invoices, receipts, and accounting records are taxable to the XXXXX. When a
three part label or form is used that is predominately for the use of the
seller (XXXXX), then the sales of such labels to the pharmacy should be
considered as taxable.
10.
Charges for Software Maintenance are covered in general in Rule
R865-19-92S.
a.
If the purchaser of the software has the option of purchasing only
telephone or on-site consultation services not involving the transfer of
tangible personal property, charges for such
consultation services
are exempt if separately stated.
b.
If the maintenance contract includes the right to prewritten
improvements furnished on storage media, the entire charge for the contract is
taxable.
11.
Charges for Hardware Maintenance are subject to the tax under all three
options described in your request. See Rule R865-19-78S.
12.
Sales of Canned Software are taxable as indicated in Rule R865-19-92S.
13.
Equipment Rental charges as described in your request are taxable on the
gross amount of each periodic rental payment. See Rule R865-19-32S.
14.
The Initial Start-up Fee is taxable as part of the rental price even if
separately stated.
15.
Facilities Management charges appear to entail the transfer of
substantial quantities of tangible personal property and are therefore subject
to the tax.
Based upon the facts presented in your
letter, we are in agreement with the Auditing Division's recommendations.
Obviously, if there are deviations from these facts, this opinion may be
negated.
If you do not agree with this
determination, you may appeal to the Tax Commission for a formal hearing. The
results of that hearing would constitute a declaratory judgment and be
appealable to the Utah State Supreme Court. A Notice of Appeal Rights and a
copy of the Utah Taxpayer Bill of Rights are attached.
For The Commission,
Alice Shearer
Commissioner